Panic at the Banks

In Los Angeles yesterday, the scenes were right out of a movie about the Great Depression 75 years ago--long lines of anxious depositors clamoring to get their money out of failing banks.

The panic was set off by news that the parent of Countrywide Bank, the biggest home-loan company in the nation, was caught in the current credit crunch and might be forced to file for bankruptcy. Despite reassurances to the contrary, crowds overwhelmed branch offices to the point that staff members were serving coffee to long waiting lines and taking names of people, asking them to come back later.

In the black-and-white movie, “It’s a Wonderful Life,” Jimmy Stewart uses his honeymoon money to calm panicky depositors and stay solvent. Things are different today. Filings with the Securities and Exchange Commission show that Countrywide Chairman and CEO Angelo Mozilo recently exercised options and then sold 672,000 shares of company stock, at a profit of almost $13 million.

With individual accounts insured by the FDIC for up to $100,000, there is less cause for worry today. But many holders of bank Certificates of Deposit are retirees, too risk-adverse to invest in the stock market and mutual funds.

They play the CD Sweepstakes Game on-line or call friends with computers to check on which Internet banks are offering a fraction of a percent more than others. For people who spent their lives dealing with bankers in brick buildings, the prospect of wiring or mailing money into thin air only adds to the anxiety.

While crowds besiege their offices, Countrywide is still running Internet ads to entice us into putting new money into those CDs. The more savvy will be asking why the bank’s executives are pulling their money out of the company stock.